I think that diagram is really ugly. And the face plate seriously over complicates things. It could just be like a PS3 controller split down the middle, with each half made a little longer and more like a Wii-Mote. Still with the analog sticks and feel. And then they could click together magnetically end to end facing inwards like handle bars, sensing when you tilt and even letting you twist the join as though you're revving it. Or both facing the same way, like a rifle/ fishing rod. I suppose they'd release a patch so that in the options menu of all the old shooters you could switch to a mode where you'd use the controller as a lightgun, but still turn the camera with the right analog.
With the alternative to motion sensing thrown in for good measure it'd be a brilliant controller.

And i think sword fighting could work, it would just show a dotted line or something where you are indicating the sword should be, and the character would just try and push towards it. When you're character is holding a heavy axe or something and isn't that strong, it would regularly get behind your marker when you are swishing about and it can't keep up with it's heavier load. It's a compromise, but all realistic video games make compromises. And i think when you've understood it it would still feel right. The 1:1 relationship of the sword to your controller, apart from when you can see the character straining toward the desired position which is also still indicated on screen, would allow for intense immersive combat.
It probably wouldn't be the be-all end-all; since people's arms get tired with the amount of action in game, modes where you just flick your wrist or press buttons would still be everywhere in hack and slash. But for boss battles and when you want to get involved... And online... If you could just challenge your friends accross the world to a duel with something as immersive, practical and physically based as this, with no real life wounds or need to actually meet up in a park with sticks, it would be a lovely, automatically stats gathering alternative.

There's some problem solving for you. Ha. I want to be a game designer actually. I'm going for the degree. So if you think i'm just coming up with stupid naive ideas but don't understand the realities of the technology etc, have a nice shout at me. Why not? I'd like to know.

This is a good attempt by Sony to try and grab themselves another 'innovation point' over Microsoft, but I'm not sure if this will work as well as the Wii Remote.

Still, the break-apart aspect is interesting, I'd like to see how that would work.